HED: Intrepid's Travis likes safe, boring investments in 2011
By Jeff Benjamin
Safe and boring investments will get the job done in 2011, according to Mark Travis, manager of the balanced and concentrated Intrepid Capital Fund Ticker:(ICMBX).
“Historically, we've owned a lot of boring things like beer, shoes and underwear because we're trying to participate in the up markets and protect in the down markets,” he said.
While the strategy favors equities, 25 of the 68 positions in the fund reflect Mr. Travis' unique twist on conservative investing: short-duration high-yield debt.
He has no problem about building 3% positions in companies he likes, and makes no apologies for a 15% cash position.
“To be fully committed today assumes there are no better opportunities tomorrow,” he said.
The $275 million fund is the retail version of the private client strategy at Intrepid Capital Management Inc., a $1.2 billion asset management shop.
“Private clients really don't care what the Dow has done, because at the end of the day they want back what they gave you along with some return,” Mr. Travis said. “This strategy makes sense for somebody that has crawled out from under a bank CD and doesn't want to take on too much risk for some total return.”
The fund this year gained 16.6%, which compares to a 12.8% gain by the S&P 500. On a three-year annualized basis, the fund gained 7.9%, while the S&P lost 3.2%.
On a five-year annualized basis, the fund gained 8.8%, compared to a 1.7% gain by the S&P.
Despite the solid track record, Mr. Travis is predicting a modest “high-single-digit return” for 2011. “We are having to scratch harder to find things that meet our fairly stringent criteria,” he said. “You have to be very careful in this environment.”
Over the past few months, Mr. Travis has been a “net equity liquidator,” but he still has favorites. He likes the 3.5% dividend yield from shares of Johnson & Johnson Ticker:(JNJ), and he also is bullish on Microsoft Corp. Ticker:(MSFT).
“Microsoft's operational cash flows have doubled this decade, the company is arguably a monopoly, and it's got $44 billion cash with just $10 million debt,” Mr. Travis said. “And the stock is trading for less than eight times operating income.”
As a balanced manager, Mr. Travis will sometimes invest in the stock and bonds of the same company, such as American Greetings Corp. Ticker:(AM).
Or he might load up on the fixed-income side of a company like Valassis Communications Inc. Ticker:(VCI), which is paying an 8.25% coupon.
“I'm free range and I'm not benchmark-centric and, as a portfolio manager, I think it would be hard to follow 250 positions,” he said. “I just want to wake up every day with a little more money.”
Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.